Magazine

A Night's Sleep, Ultracheap

January 22, 2006

You tote your own luggage, the bed's a bit stiff, and the decor in the spartan rooms and lobby is reminiscent of a college dorm. Oh -- and you can't buy a beer. But for $22 a night, the indiOne Hotel is one heck of a bargain. It's in the heart of Bangalore's top high-tech park, across from the new convention center and within walking distance of the research campuses of General Electric Co. (GE) and software company SAP (SAP). The spotless rooms have free wireless Internet and 17-inch flat-panel TVs. Given the alternatives, the indiOne is a real deal: Rooms in booming Bangalore are so scarce that you'll be lucky to pay less than $200 at a second-rate hotel.

IndiOne is the vanguard of an ambitious experiment by the Indian Hotels Co., a unit of Tata Group known mainly for its Taj luxury hotels. It is the result of a four-year development project led by management guru C.K. Prahalad. The goal is to re-invent the budget business hotel and prove it's possible to make money selling quality rooms at reasonable rates. In fact, the Bangalore indiOne is the most profitable of the group's properties, asserts Indian Hotels Vice-Chairman R. K. Krishna Kumar; it posts operating margins of 65%, compared with about 35% for four-star Taj hotels and 50% for five-star properties, he says. The company is opening 10 more indiOnes in India and hopes that within the next five years it will have hundreds operating in cities around the world.

How does indiOne do it? By "not leaving a single rock unturned to dramatically crash the price," explains Prahalad. The biggest savings are in staff. The 100-room indiOne has seven full-time employees, while a comparable U.S. motel has about 50 and a first-class hotel close to 130. IndiOne outsources everything from cleaning and laundry to computer support and cafeteria service. Guests stash valuables in lockers, cutting the need for security. Most bookings are made online, where rates are about 6% cheaper, and word of mouth usually is enough to keep the hotel full. "We haven't spent a rupee on advertising," Krishna Kumar says.

Indian Hotels dubs its new room format "smart basic." To free up space in the very compact rooms, TVs are mounted on the wall. The furniture, flooring, and bathroom fixtures are made of easy-to-clean materials. Even so, guests are asked to eat only in the cafeteria, which offers cheap meals. "This is a great hotel if you know how to use it," says one regular, a Silicon Valley venture capitalist.

Indian Hotels got one lucky break: It bought the site before land prices in Bangalore and other Indian cities skyrocketed. But the company has an innovative strategy for coping with expensive real estate: It hopes to find one-acre lots by offering landowners a share of the hotels' profits. Indian Hotels is modifying the format to cater to families, rather than business-people, in tourist cities. Krishna Kumar believes the company can also adapt the concept in nations such as Pakistan, China, and Brazil.

What about America? Not yet. Pricing a room at a U.S. business hotel at $22 would be a stretch, concedes Prahalad. But he believes strategies pioneered at indiOne could one day lower the price of a room in many big U.S. cities to around $40.